Local government finance circular 6/2025 - accounting for infrastructure assets: temporary statutory override

Introduction and contents

Dear Director of Finance,

Statutory override - accounting for infrastructure assets 

The CIPFA/LASAAC Code of Practice for Local Authority Accounting in the United Kingdom (the Code) requires infrastructure assets to be measured using the historical cost measurement basis and carried at depreciated historical cost.  

Local government auditors in England raised concerns during the audit of local authority 2021-22 annual accounts with regards to subsequent expenditure on infrastructure assets.  The Code requires that where a component of an asset is replaced, the carrying amount (i.e. net book value) of the old component shall be derecognised, to avoid double counting, and the new component shall be reflected in the carrying amount of the infrastructure asset.

However, due to practical difficulties in applying component accounting for the recognition and derecognition of replaced components of infrastructure assets, in large part due to historic information limitations, I understand that most local authorities have been unable to comply with the requirement to assess the net book value of a replaced component of an infrastructure asset and have taken a network approach to the measurement of such assets, treating the amount of the replaced component as having no value. This is because the replaced component is considered to have been fully used up at the point that it is replaced.  The concern raised by auditors is that there may be a lack of evidence to support this assumption.  

A temporary statutory override was introduced in August 2022, applying to the 2022-23 and 2023-24 financial years, in order to allow time for the CIPFA LASAAC Local Authority Accounting Code Board to conclude the development of a permanent solution. The statutory override was then extended to 31 March 2025. However, a permanent solution has not yet been agreed and therefore the statutory guidance will be extended by a further 2 years until 31 March 2027.

Yours faithfully
 
Elanor Davies
Head of Local Authority Accounting

Accounting for infrastructure assets

Scottish government

Content

• part 1 - Background and non-statutory guidance
• part 2 - Statutory guidance – Statutory Override to the Code for Infrastructure Assets

Part 1 of this document gives non-statutory guidance only and is not part of the guidance itself, which is contained in Part 2.